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HOW WOULD YOU DEFINE financial freedom? That’s the intriguing question I’ve been asked twice in recent weeks by journalists curious about the new HumbleDollar book, My Money Journey: How 30 People Found Financial Freedom—And You Can Too.
Financial freedom is something that pretty much everybody wants, and yet there’s no agreed-upon definition. Still, I think most folks would focus on two key elements: time and money. But I don’t think it’s a simple matter of having lots of dollars and lots of free time. Instead, I believe financial freedom rests on two key pillars.
First, we can spend our days as we wish. Time is the ultimate limited resource, which is why things that waste time—think doing the taxes, sitting in traffic or waiting at the Department of Motor Vehicles—can be so infuriating.
For better or worse, none of us knows how much time we have. But we know that one day it’ll run out, so it’s crucial that we make the most of the days we’re given. To that end, we should spend our time with those we love and we should spend it doing the things we love.
If we love our job and we like our colleagues, we may not have achieved financial independence in the traditional “I never have to work another day in my life” sense. But, arguably, we’re pretty close: Not only do we get to do what we love, but also we get paid for doing it.
That brings me to a notably silly definition of retirement. Over the years, I’ve occasionally heard readers argue that if folks are still earning money, even if it’s from part-time work in their 60s or 70s, they aren’t truly retired. That, I think, is a dangerous mindset. Next thing you know, these readers may decide that doing anything that looks like work—paid or unpaid—is against the rules of retirement, and soon they’ve committed themselves to a dreary life of nothingness.
My contention: We all need a sense of purpose, whether we’re working or retired. The blessing of financial freedom is that we can choose our purpose, deciding to devote our days to activities that we’re passionate about and that we find fulfilling. That might mean doing volunteer work for our favorite charity, our place of worship or the local library. It might mean painting, writing, carpentry or gardening.
There’s great pleasure in working hard at activities we care deeply about—and, indeed, I believe it’s one of the three key elements of a happy life. What if these activities happen to pay a little money? You won’t find me complaining.
Second, we rarely worry about money. Many folks fret constantly about their finances—because they have to. They struggle to live within their means, so every expenditure, even if it’s intended to boost their happiness, often instead ends up boosting their stress level. And, no, this isn’t just an issue for those with low incomes.
That raises the age-old question: Does money buy happiness? If we’re struggling to afford life’s necessities, the answer is a resounding “yes.” If we can lift ourselves out of poverty, or do so with assistance from others, our happiness will be greatly improved. Throw in a few thousand dollars in a bank account, and we’ll also have a sense of financial security that’s crucial to peace of mind.
But once we’ve achieved some minimum standard of living and have some sense of financial security, happiness becomes less about our absolute level of income and wealth—and more about our relative standing. A recent study found that the higher our income rises, the happier we’re likely to be, with the gains in happiness becoming ever smaller with each incremental dollar. That suggests that our income relative to others is what matters.
I’m not suggesting the research is wrong, though I do think the results are likely skewed by what’s called a focusing illusion. In other words, when those who are better off are asked about their happiness, they think about their fortunate financial standing relative to others and that prompts them to say they’re happy. This is the power of gratitude at work.
Instead, I’d argue that the researchers are focusing on the wrong “relative.” True happiness doesn’t rest on how we stand relative to others—though those around us may influence our material desires. Rather, happiness hinges on how we stand relative to our individual wants and needs, something that’s much harder for researchers to measure.
If we earn great gobs of money but our desires regularly run ahead of our income, we’ll suffer enormous financial stress—because we’ll never feel like we have enough. To be sure, earning more or having more means we’re more likely to have sufficient money to cover our wants and needs, but there’s no guarantee that we’ll indeed feel like we have enough.
That brings us to another important notion. Yes, money can buy happiness. But more important, its absence—not having enough or feeling like we don’t have enough—can lead to great unhappiness.
Financial freedom isn’t a seven- or eight-figure portfolio balance. Instead, it’s knowing we have enough to pay for the life we want. It’s the ability to enjoy two great luxuries—spending our time as we wish and not having to think about money.
How would you define enough? Offer your thoughts in HumbleDollar’s Voices section.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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As ever, Jonathan, your articles prompt deeply felt responses. To your observations I would add a third, (which likely says much about my experience). Having spent time “food and housing insecure” as the current jargon has it, to your two elements of financial freedom I add “stability”. Simply knowing where one will sleep and that one will eat today, tomorrow, and quite likely onward is priceless. Of course, the world turns; “time and chance happen to us all”. The key thing is the “quite likely onward” part. Being reasonably confident in my circumstances and ability to maintain my life is essential to me.
Good article Jonathan. I think the most important thing is what is our purpose? If we have a noble purpose that is not selfishly directed, then worrying about having enough is not as important.
Good article, with which I mostly agree. I do think there is a huge psychological component to “enough” – some people will never have enough. I agree that “enough” buys you the freedom to use your time as you see fit. Want to stay home with a book or three? Want to go out and volunteer? Want to go further and go round the world? All possible.
But in the words of the old commercial, freedom from worry: priceless. Knowing that, unless there is a black swan event, you will have a roof over your head, clothes on your back, food on the table and access to medical care for the foreseeable future puts you way ahead on Maslow’s hierarchy of needs. Coincidentally, I was just reading a NYT article on backyard mini-houses for the formerly homeless, and one beneficiary said: “When you’re tired with no safe place to rest, that’s the only thing you can think about.” In the words of the song: “There but for fortune….”
Several years ago, I read the book Material World: A Global Family Portrait by Peter Menzel. They went around the world and asked a representative family to remove all their home contents and display them for a photo. You can imagine some homes had very little, but the United States (a house in Texas) couldn’t even bring all their possessions out. They didn’t have enough time. Imagine someone asking you to remove all your contents for a photo. I digressed from “financial freedom” but in a lot of cases we do have enough stuff.
I’ve read Americans may own 200,000- 300,000 items, that’s quite staggering.
I worked for a property and casualty insurance company. The adjusters I talked to said they never paid less than the full amount of the contents coverage limit when there was a total loss on the house (fire, tornado, etc.). No one has enough contents coverage, and no one has a detailed inventory. That 200,000 to 300,000 number for items might be why.
Maybe that’s why State Farm wanted to insure the contents of my apartment for $300,000. Without asking me. I had to read the fine print to figure out why rental insurance was going to cost nearly as much as my house insurance. I had been with them for decades but I was so angry I switched to Erie.